Jul 27

Is there any hotter subject for TV and film these days than the vampire?  The mass-appeal of these blood-seeking creatures appears to be at an all-time high, with shows like True Blood, The Vampire Diaries and the Twilight Saga series of books and films bringing home the bacon.

Wealth-sucking creatures that will stop at nothing...

Just when you thought it was safe to get back into the economy...

Then there are those perennial horror favorites, zombies, that defy all attempts to do them in.

It seems like Congress is trying to capitalize on the craze as well.   Witness the up-and-coming,  back-from-the-dead behavior of the Estate Tax, also known as the Death Tax, coming soon to every estate-planner’s office near you.

I once heard the expression, “When is my money finally mine?”   Apparently our current Congress has an answer: never.   This Congress, gleefully implementing every supposed remedy for income inequality, hopes to allow the Estate Tax to come back to life at the end of this year, when it will make the astounding jump from 0% to 55% overnight.

In the strangest of ironies, the toughest vote here will be to not have one.   That is, thanks to the ridiculous implementation of the infamous “Bush Tax Cuts” of 2001, Congress simply needs to sit on their hands for the tax to kick in.   Perhaps the Republicans at the time assumed their rein would continue, and that they’d simply renew the tax.   Had they stuck to the previously successful strategy and principles of being the party of limited government, they would have had that chance.    Now the Democrats will need to look the public in the eye and attempt to convince them that allowing this tax zombie to return is exactly what the economy doctor ordered.

Treasury Secretary Timothy Geithner, leading a group of regulators created by the new “Fin Reg” legislation, has begun making the rounds.   He spoke with reporters in Washington DC on July 22nd, as reported in this Bloomberg story:

Geithner, responding to a question about the absence of a federal estate tax, said it is “a terribly troubling thing that the United States of America would let that lapse.” The tax should be restored to 2009 levels, he said.

That would remove this year’s unlimited estate tax exemption and restore the amount to $3.5 million, with any assets beyond that level being confiscated at the rate of 45%.   Believers in big government and practitioners of class warfare see no problem with that.

First of all, they look at the revenue potentially generated by the tax and think they can better put it to use than the deceased’s family would.   Second, they remind us at every opportunity that only a tiny fraction of taxpayers would even be affected by the legislation, a tyranny of the majority action if there ever was one.  Lastly, they see it as a natural opportunity to fight income inequality.    The problem, of course, is that they are demonstrably wrong.

Above all, keep this in mind:   An estate tax swiftly transfers wealth from a person with a proven track record of creating it, to an entity with a proven track record of destroying it.

When people fret over income inequality that would supposedly be exacerbated by inherited wealth, they forget that even more important than the wealth is the knowledge of how to put that wealth to good use.    As Arthur Brooks discusses in his recent book, “The Battle”, sudden influxes of wealth (think lottery winners) often enter into a world of hurt:  the knowledge of how to handle the money is not attached to the money itself, so it is typically squandered.

By contrast, any responsible person leaving substantial funds to their heirs will take considerable care to ensure that the funds are preserved.  If these funds are in the form of a family business, be it a farm, automobile dealership, or baseball team (witness George Steinbrenner’s sad departure), the knowledge embodied in the success of that business is typically passed to the heirs as well.   But in the face of an estate tax that might claim half of the value of the business beyond the state-sanctioned “exemption” (i.e., that which the political process deems “fair” for the owners to retain), the owners are often forced to sell substantial parts of the business, if not all of it, just to pay the taxes.   And with that, it is often the case that jobs are lost, and economic activity is arbitrarily curtailed.

Die Estate Tax, Die!

Of course, an entire industry exists to attempt to mitigate these effects:  the “estate-planning” business.   I welcome comments that will address how buying large insurance policies that serve only to pay the estate taxes create lasting economic activity.  Absent the estate tax, such policies and tax-dodging advice would not be necessary.   The current setup would seem to be more like a cushy arrangement between the legal and insurance industries, and government, something that aides the “corporate cronyism” atmosphere that creates so much cynicism about “free-market capitalism”.   Instead of purchasing new equipment or raising wages, the business owner instead spends substantial sums of money to ward off Dracula.   Should these products include sunlight, garlic and crucifixes in their advertising?     In any case, there is something perverse about a government tolerating private industry selling products that seek to ameliorate the effects of its laws.

Like so many public policy issues, the estate tax boils down to the simple question of Who decides? Will a family’s wealth be taken, redistributed and wasted by a political process, or will it be treated as the private property that it is and utilized according to the owner’s wishes?   As the American Family Business Institute describes, the ideological roots of the estate tax are found in Karl Marx’s Communist Manifesto:

In one word, you reproach us with intending to do away with your property. Precisely so; that is just what we intend.

Voters in the upcoming election will need to decide a question that is elemental to this country’s existence:     Will private property be predictably left in the hands of those that created it, or will it be arbitrarily bled by vampires and fed to zombies?

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5 Responses to “Vampires, Zombies and The Estate Tax”

  1. Moncler says:

    UBE This really is truly fantastic news. Thank you for sharing it with us! -FV….

  2. Administrator says:

    By way of follow-up, here’s an interesting story countering Obama’s claim that we can safely reinstate the estate tax because it affects so few people:

    http://www.cnbc.com/id/39212241

  3. Tom says:

    Interesting…would have been more fun if you delved into the vamps!

    But seriously, all logical points but I would take issue with one part:

    “Above all, keep this in mind: An estate tax swiftly transfers wealth from a person with a proven track record of creating it, to an entity with a proven track record of destroying it.”

    While, this is more true than not, you aren’t always in an absolute sense taking money from a proven entity and transferring to the government– i.e. the success of a parent does not guarantee success from a child. See Georges Bush.

    • Administrator says:

      Of course, there are a variety of exceptions. And in fact, there are anecdotes of inherited wealth disappearing within three generations, likely due to a failure in the above-mentioned knowledge transfer. Nonetheless, the record of government in preserving wealth is far, far worse, and that ignores all of the critical private property issues also discussed in the piece.

  4. […] This post was mentioned on Twitter by nonsumdignus, Civil Society Trust. Civil Society Trust said: New article: "Vampires, Zombies and The Estate Tax" http://bit.ly/99BbJ5 […]

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